The North American economy is widely affected by weather conditions. The Chicago
Mercantile Exchange stated recently that weather affects US$2 trillion of the
US$9 trillion gross national product (GNP). Insurance is a critical part of
the vulnerability/adaptation equation because many of the economic risks and
impacts of weather-related events are diversified and ultimately paid through
insurance.

The discussion in the following subsections embraces public and private insurance
systems, as well as disaster relief. Within the private insurance sector are
many actors, including property/ casualty (P/C) insurers, life/health insurers,
reinsurers, self-insurers, and various trade allies (risk managers, brokers,
agents, etc.). Within the public sector are direct insurance programs, as well
as disaster preparedness and recovery activities. Other segments of the financial
services sector appear to be less vulnerable and are treated in Chapter
8.

15.2.7.1 Private-Sector Insurance Systems

Private insurance is among the largest economic sectors in North America, with
about 40% (US$780 billion) of global premium revenues in 1998 (Swiss Re, 1999).
North American premiums represent 9% of GDP, or about US$2,600 per capita. Despite
its size, the industry is hardly a monolith; there are numerous types of insurance
companies and market segments (Mills et al., 2001).

Weather-related loss data presented here are based on diverse sources, and
the particular costs included can vary somewhat among countries and over time.
In some cases, definitions set minimum thresholds for inclusion; for example,
because of the minimum cost threshold of US$25 million in the U.S. (formerly
US$5 million), no winter storms were included in the statistics from 1949-1974,
and few were included thereafter (Kunkel et al., 1999). Although large in aggregate,
highly diffuse losses from structural damages as a result of land subsidence
also would be captured rarely in these statistics. Data-gathering conventions
can result in omission of certain types of costs (e.g., weather-related vehicle
losses). Thus, the totals presented here are inherently underestimates of actual
losses.

Although North America experienced 59% of global weather-related insurance
losses and 36% of total economic losses during the 1985-1999 period, it experienced
only 20% of the events and 1% of associated mortalities (see Figure
15-4). Total economic losses (insured and uninsured) from weather-related
events represented US$253 billion (current dollars) during this period. Of that
total, 38% (US$96 billion) were privately insured, with considerable year-to-year
fluctuations in the ratio.

During this period, weather-related natural disasters represented 82% of total
natural disaster losses in the United States and virtually the entire total
in Canada (where significant earthquake losses have not occurred). Although
considerable attention is given to catastrophic losses, half of all insured
weather-related losses are from relatively small events (see Chapter
8).

Inflation-adjusted catastrophe losses have been growing in North America over
the past 3 decades (see Figure 15-5). Corresponding
exposures, measured as the inverse of the ratio of premium income to losses,
have been growing (i.e., if the ratio goes down, exposure goes up); the ratio
has varied by a factor of six in the United States between 1974 and 1999, and
by a factor of four in Canada between 1987 and 1999 (see Figure
15-6).

Although many of the upward trends in weather-related losses are consistent
with what would be expected under climate change (see Chapter
8), efforts to disentangle socioeconomic and demographic effects from climatic
factors have had mixed results in the United States (Changnon et al.,
1997, 2000; Karl and Knight, 1998; Pielke and Landsea, 1998; Changnon, 1999).
In Canada, there is a stronger sense that both factors are at work (White and
Etkin, 1997; Hengeveld, 1999).

Irrespective of climate changes, it is clear that human exposure is increasing
with affluence and as populations continue to move into harm's way. The
estimated value of insured coastal property exposure for the first tier of counties
along the Atlantic and Gulf Coasts as of 1993 was US$3.15 trillion (IIPLR and
IRC, 1995).

Most types of weather-related eventsrain, hail, ice storms, tidal surges,
mudslides, avalanche, windstorm, drought, land subsidence, lightning, and wildfireare
of concern to insurers (Ross, 2000). Corresponding losses can range from property
damage to business interruptions and temporary housing costs as a result of
loss of electric power. Coastal erosion is an important consequence of sea-level
rise and already is responsible for a considerable and growing rate of losses
(Heinz Center, 2000). Insurance in North America originally focused on fire
peril; only since the late 1930s have insurers provided broad-based coverage
for weather-related events (Mills et al., 2001).